IMF Executive Board Completes First Review Under the ECF Arrangement for Bangladesh and Approves US$139.4 Million Disbursement

Press Release No. 13/57
February 20, 2013

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Bangladesh’s economic program under a three-year arrangement supported by the Extended Credit Facility (ECF). The completion of the review enables an immediate disbursement of an amount equivalent to SDR 91.423 million (about US$139.4 million), bringing the total amount disbursed equivalent to SDR 182.846 million (about US$278.8 million).

In completing the review, the Executive Board approved the request for a waiver for nonobservance of the performance criterion on new nonconcessional external debt maturing in more than one year.

The Executive Board approved a three-year ECF arrangement for Bangladesh on April 11, 2012 (see Press Release No. 12/129) for a total amount equivalent to SDR 639.96 million (about US$975.9 million), or 120 percent of quota.

Following the Executive Board’s discussion of Bangladesh, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, made the following statement:

“Macroeconomic pressures have eased in Bangladesh, aided by stabilization measures aimed at containing government borrowing, reducing the inflation rate, and building foreign reserves. While the global economic situation remains fragile, Bangladesh’s economy continues to show resilience, with growth this fiscal year expected to slow only moderately. However, risks remain to the downside, mainly arising from a slowdown of exports to mature markets, spike in world commodity prices, further deterioration in state bank finances, and election-year uncertainty. Going forward, firm implementation of the ECF-supported program is necessary to consolidate gains made thus far, maintain fiscal and debt sustainability, reduce vulnerabilities, and achieve higher and sustainable growth.

“Fiscal policy has remained broadly on track, but underperforming tax collections, related mainly to the trade slowdown, require upfront actions to broaden the tax base and strengthen enforcement. Over the medium term, the new value added tax is expected to increase revenues and guide tax modernization. Subsidy costs still weigh large on public finances. “Continued vigilance is needed to contain energy and fertilizer related outlays, while improving the reach of safety nets, all with a view to creating more space for growth-critical development spending. The government’s debt management strategy should focus on utilizing concessional and selective non-concessional borrowing to ensure debt sustainability.

“Bangladesh Bank’s monetary policy has helped reduce credit growth and inflationary pressures, but recent easing, while modest, should proceed further only when macroeconomic and financial stability is firmly established. Policy effectiveness will be enhanced by continued exchange rate and interest rate flexibility

“Structural reforms have moved forward. However, greater coordination is required in reaching internal policy consensus to avoid delays. The new VAT law is a landmark, but its timely implementation will require careful planning and support, foremost in tax automation. Banking law amendments, aimed at strengthening financial sector governance, should also move forward to keep risks in check, especially those arising from the state-owned banks. Other envisaged reforms in revenue administration, public financial management, and foreign exchange controls are all aimed at boosting public and private investment, in order to accelerate growth and further reduce poverty.

“Looking ahead, achieving a stable, growth-supportive environment and mitigating risk factors necessitate a further strengthening of policy buffers in 2013, supported by strong economic governance and manageable debt levels. Timely actions will allow Bangladesh to reap full gains from a global recovery.”